Transcript Commercial Delivery and Targets for Wood Mackenzie’s

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Natural Gas Market Outlook—Changing Expectations
August 4, 2008
San Francisco, CA
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North American Gas Market Outlook Short Term Dynamics
For Now, Domestic Supplies Have Responded to High Price and Demand…
North American Supply by Region
80
70
Western Canada
60
Gulf Coast and GOM
West Coast
bcfd
Eastern Canada
40
Southeast
30
Southw est
20
Northeast
Canada Arctic
10
Midcontinent
C
-5.0
5.0 bcfd growth
in US supply
2007-2009
50
G
ul
fC W
Ea
o e
s
M an
te W as ste
S
id a
r
r
N o S
e t
R con da or u th ou n C st and n C
oc
t
a
t
a
C
A
h
ki tine rct hea wes ea nad oa GO nad
es n i c s
st
t
M a
a st
t
t
Regional Growth 2007-2015
0.0
5.0
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Rockies
bcfd
High prices have spurred record drilling levels and revived US supplies
Growth comes from unconventionals—tight gas, shale gas, and cbm
Domestic supply should rise through 2012 and hold a plateau through 2015
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Key Increments of Growth Come From the Rockies and Mid-continent
Regions…
Rockies – Greater Green River and
Uinta-Piceance basins providing
strong growth for the region
Lisburne
Gulf Coast – Tight gas production
from the Travis Peak, Cotton Valley,
Deep Bossier plays expected to
grow
Mid-Continent & Southwest –
Significant supply growth due to
the development of Barnett,
Fayetteville and Woodford shales
GoM – Independence Hub has
provided a boost to the deepwater
production. 14 deep water fields
expected to come online in 2008
Powder River
Basin CBM
Jonah/Pinedale/
Wamsutter
Baxter Shale
WCSB – Production declines due to
Increase in costs, weakening US
dollar and increased royalty rates.
BC shales not included in base
case forecast.
Uinta-Piceance
Barnett
Fayetteville
Conasauga
Woodford/Caney
Woodford/Barnett
Commercial
Potential/Emerging
Bossier/Cotton Valley
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US Shale Gas Supplies: New and Emerging Plays
Shale Gas Forecast
8,000
7,000
mmcfd
6,000
5,000
4,000
Technology, Price
3,000
2,000
1,000
Proximity to Market, Tax Credits
0
2000
2005
2010
2015
Appalachia Devonian
Antrim
Lewis/Mancos/Mowry
Barnett
Fayetteville
Woodford/Caney
Improved technology and higher gas prices have led to strong growth from the shale plays.
Significant upside from some newly announced plays—Haynesville, Marcellus, BC Horn River
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New Shale Plays Have the Potential to Push Production Higher
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Shale Gas Supplies: New and Emerging Plays
Haynesville Shale
94°W
OK
AR
Bossier
MS AL
TX
LA
Caddo
Harrison
SENTELL
Louisiana
WOODLAWN
SCOTTSVILLE
SHREVEPORT
Texas
32°30'N
Webster
BENTON
Petrohawk
LONGWOOD
Questar
r
ve
BLOCKER
BETHANY
WASKOM
Shreveport
GREENWOODWASKOM
SLIGO
Petrohawk
Chesapeake
DARCO SE
Acreage holders include Chesapeake,
Petrohawk, Comstock, EXCO, El Paso
COTTON
VALLEY
IVAN
CADDO PINE
Ri
Current operator announced net resource
potential at 17- 33.5 tcf
KY
TN
MO
d
Re
Shale present along the Texas-Louisiana
border underlying the Cotton Valley sand
KS
32°30'N
Operators describing Haynesville as being
one of the biggest plays in the region –
too early to tell
93°30'W
ELM GROVE
JOHNSON
RANCH
BRIGGS
Panola
De
S ot
o
Bienville
BETHANY
Cubic
Chesapeake drilled four vertical tests and
three horizontal wells in 2007.
CASPIANA
Goodrich
Operators announcing plans to increase
rigs
BETHANY-LONGSTREET
Chesapeake
El Paso
Exco
HOOPER
Shelby
Goodrich
JOAQUINLOGANSPORT
Chesapeake leases as of 1/1/2007
5
10
32°N
Cubic
SPIDER
0
No issues with infrastructure expected
RED RIVERBULL BAYOU
El Paso
CARTHAGE
32°N
Horizontal wells expected to cost US$5.5
million and recover 3.5-4.0 bcfe
HOLLY
Red River
Petrohawk
Questar
km
20
94°W
93°30'W
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Shale Gas Supplies: New and Emerging Plays
BC Horn River Basin Shales
Record lease sales in 2007. Favourable
royalty structure.
A 2005 study on Devonian shale potential
put the resource at over 500 tcf of gas-inplace.
Estimates of GIP per section double those of
the Barnett, due to the thickness, rich
organic content and pressure
No water production and CO2 volume
approximately 10%
Apache, EOG and Nexen estimate
recoverable gas resources of 18 to 31 tcf
Well costs high. Initial breakeven estimates
of US$6.50-7.90/mcf
Challenges:
• Winter only access, lack of infrastructure, possible delays in permitting due to native
landownership, and possible environmental concerns
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Shale Gas Supplies: New and Emerging Plays
Marcellus Shale
Study estimates over 50 tcf recoverable
reserves. Much higher than USGS estimate
of 1.9 tcf.
Range Resources controls 750,000 acres.
Other operators include Chesapeake,
Equitable, CNX
Shale at a similar depth as Barnett (8,000 ft)
and Barnett style slick water fracturing is
effective
Horizontal wells expected to cost US$ 2.53.3 million. Recent wells have had good
initial production rates of 2.6-5.8 mmcfd
Challenges
• Developing the gathering infrastructure could take time. Fragmented land ownership.
• Shale extends over large area and operators yet to delineate the core fairway
• Very few rigs with the required depth rating and limited equipment available for fracturing
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What does the supply growth mean for pricing?
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Demand from the Power Sector Will Put Pressure On North American
Gas Supplies
Environmental Legislation
Regulatory Uncertainty
Rush to Build Gas
Acceleration in Demand
Growth, 2011-2015?
Rising Capital Costs
Shrinking Reserve Margins and
Strong Demand Growth
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But in the Mid-Term Demand Drivers are not Strong
Net Wind and Coal Power Capacity Additions
Capacity additions
from wind (derated)
and coal could meet
much of expected
generation growth
9,000
8,000
7,000
6,000
5,000
MW
Weak US GDP
growth expected to
hold through start of
’09, structural
issues associated w.
the credit crisis and
real estate
weakness will
forestall recovery.
GDP growth of 1.8%
expected for 2009
4,000
Wind
3,000
Coal
2,000
1,000
0
-1,000
2008
2009
2010
2011
2012
2013
-2,000
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Meeting longer term US demand growth requires LNG…North
America competes for flexible cargoes
North America Attracts Flexible LNG in 2012…
…When Prices Increase to Global Levels
2.00
10
9
8
Canada Flexible
7
$/mmbtu
North American Total
5
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
0.00
US Flexible
6
bcfd
1.00
Mexico Flexible
US-UK
Differential
-1.00
4
-2.00
3
2
-3.00
1
0
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
-4.00
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Competition For These Supplies is Fierce!
LNG OVERVIEW:
SUPPLY
Global LNG Supply
600
Supply is struggling to keep pace with
demand
500
Supply lag factor is evident
• Slippages in projects under construction
Factors adversely impacting projects
include:
• Overheated resource markets
400
mmtpa
• Probable and possible projects (i.e. those
that are pre-FID) are being delayed
300
200
• Moratoria on new LNG projects
• Requirement for additional exploration
100
• Technical challenges
• Unclear Government position on exports
• Permitting and approval processes
FID = Final Investment Decision
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Jan-04
Oct-05
Dec-06
Oct-07
May-08
Source: Wood Mackenzie
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And Requires US Prices to Increase to Global Levels—and
Reconnect With Oil
Global Prices (2008$)
Oil’s influence holds in
Japan and the UK,
although Japanese
uncontracted prices fall as
Pacific Basin LNG supplies
climb
Recovery and
reconnection begins as the
pressure from the power
sector increases and
domestic supply growth
stalls in 2011 and 2012
Reconnecting to Global
Markets, and Oil?
18.00
16.00
$/mmbtu
US prices disconnect from
global gas prices, and
move toward coal by 2009,
prices for both gas and
coal move lower for 2010
20.00
14.00
US
12.00
UK
Japan
10.00
Coal
8.00
WTI
6.00
Resid
4.00
2.00
2006
2007
2008
2009
2010
2011
2012
2013
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Carbon Legislation Could Push Gas Demand Higher
40
Framework based on
Lieberman-Warner
35
Lack of alternative
fuels and technology
drive gas demand
Utilities are
indifferent to gas
price
Industrial demand
may be at risk
dependent on global
gas-intensive
commodity markets
25
bcfd
Tight emission credit
markets drive
capacity economics
to favor gas
30
20
15
Base Case
10
Carbon Case 2
5
0
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
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